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EDITORIAL: Vodacom, how not to conduct a public share sale

Wednesday July 12 2017

Brokers at the Dar es Salaam Stock Exchange. PHOTO | FILE

In Summary

It may be too late to shelve the Vodacom sale but a rethink of the timelines for telcos and miners to float their shares would be ideal for now. A sustainable path would be to require the companies to commit to listing at a later date determined in consultation with the government.

One would have to travel far and wide to find an initial public offering more embarrassing than that of Vodacom in Tanzania, which has been extended for a second time; the latest extension coming almost two months after it closed.

To understand the mediocre handling of the sale, it is important to look into its background. The product of an administrative fiat that telcos cede a quarter of their ownership to locals through the Dar es Salaam Stock Exchange, the IPO appeared rushed as the issuer – a subsidiary of South Africa’s Vodacom Group and by extension UK’s Vodacom – sought the potential benefits of early compliance.

These would include bragging rights, a local identity and a nod from the government; all of which can yield immense business benefits.

In that excitement, the fundamentals of a share sale, including the capacity of the market to absorb the $213 million, were ignored. And so it came to pass that foreign investors, including EAC ones, were initially not invited to the party before they were asked to pick up the crumbs that Tanzanians would leave on the table.

It turned out the appetite of the preferred guests was overestimated and now erstwhile gate crashers can have their fill. That after loans being offered to Tanzania civil servants to participate in the offer failed to raise demand as much as was expected. As far as publicity, marketing and disclosures go, the market was not primed.

Going by IPOs elsewhere, roadshows run for at six weeks before the IPO is announced, depending on the size of the offer. In Vodacom’s case, even the media were caught unawares by the announcements, including the timing.

The failure of the flotation provides a moment of reflection on the government determination to see firms in key sectors – miners are also required to list 30 per cent of their shares – go public.

First, does Dar have policies in place to attract investors to the IPOs? The failed Vodacom IPO raises serious questions about the depth of the Tanzania capital market as a source of corporate finance.

To back the good intentions of broad ownership, effective policies to make markets vibrant and increase liquidity should be in place. Tanzania can hardly claim to have those with its hesitant embrace of foreign investors.

Granted foreigners can now entirely own a listed company, foreign exchange controls still place a hurdle on repatriation of dividends. Savvy investors do not put money where it will be tied down.

Second, President John Magufuli’s recent decrees on mining, which have just been regularised by changes to the law, have caused uncertainty, fear of nationalisation even, that has rattled the confidence of investors. That alone might prove to be a big put-off for punters who would have bet on Vodacom.

It may be too late to shelve the Vodacom sale but a rethink of the timelines for telcos and miners to float their shares would be ideal for now. A sustainable path would be to require the companies to commit to listing at a later date determined in consultation with the government. As many countries have found out the hard way, forcing investors to prematurely take on board local players discourages new entrants and sets the stage for infighting.